(November 7) – “The accounting rule-making body in the United States reversed course on a contentious issue yesterday and agreed to change accounting rules in a way that will substantially raise reported profits for companies that acquire other companies,” writes Floyd Norris in today’s New York Times.

“The rule makers, the Financial Accounting Standards Board, reversing a tentative decision it had made last year, ruled that good will — the asset created when companies pay more to acquire each other than the book value of the underlying assets — need not be written off over any particular period.”

“Instead, good will would be allowed to remain on the books indefinitely, until the company determines that the operations of the acquired company are performing so poorly that a write-off is needed.”

“In the corporate world, merger accounting has long been a highly contentious area, with companies seeking rules that would allow them to look good. The standards board is moving to end one of two ways that mergers are now accounted for, the so- called pooling method, that companies have long preferred.”

“The prospect of its elimination aroused fierce opposition from many businesses, which argued that changing the merger rules would make it harder for companies to merge, and legislation was introduced in Congress to stop the board from acting.”

“The new plan, which the board accepted in a unanimous vote, would eliminate pooling but would also make the alternative approach, known as purchase accounting, much more palatable to business.”

” ‘There is an element of compromise in this decision,’ said Robert Willens, an accounting analyst for Lehman Brothers. ‘It was clear that, as a political matter, for them to have any chance to eliminate pooling, they had to make purchase more attractive.’ “

“Edmund L. Jenkins, the chairman of the accounting standards board, said in an interview that political factors were not paramount in the decision. ‘Will this make some of our critics go away?’ he said. ‘I expect that will be the case, but I also think the decision is well grounded.’ “